There are a number of dividend shares on the ASX that I’d buy to boost my income.
Business earnings are also uncertain at the moment due to COVID-19 impacts. I think there’s a certain number of dividend shares that would be solid picks to boost my income, but others may not be as good as some investors expect.
Here are three dividend shares I’d go for:
Dividend share 1: Naos Emerging Opportunities Company Ltd (ASX: NCC)
The listed investment company (LIC) structure is great for investors who want income. It enables the LIC to generate investment profits from capital gains and investment income, the LIC can then pay out a smoothed dividend to shareholders.
But I only think certain LICs are worth investing in. Plenty of LICs just offer index-like returns with higher fees.
Naos Emerging Opportunities is a LIC that invests in ASX shares with market caps under $250 million. It is a good dividend share because it has maintained or grown its dividend every year since FY13. It currently has a grossed-up dividend yield of 12%.
If the LIC can continue to generate solid returns then the dividend can at least be maintained. It holds a portfolio of high-conviction shares, it only has around 10 positions. It aims to be a long-term investor with each investment choice.
Dividend share 2: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is probably my favourite dividend share on the ASX. It has increased its dividend every year since 2000. The first thing I look for with dividends is reliability. I don’t think there’s much point having a big dividend yield one year and then suffering a large cut one year later. Soul Patts has paid a dividend every year since its inception in 1903.
The investment conglomerate has a diversified portfolio of shares which sends a flow of quality dividends to Soul Patts each year. Some holdings include TPG Telecom Ltd (ASX: TPM), Milton Corporation Limited (ASX: MLT), Bki Investment Co Ltd (ASX: BKI) and Brickworks Limited (ASX: BKW).
The business funds its dividend from the investment income it receives, less operating expenses. In FY19 it retained around 20% of its regular net operating cash flow to re-invest into more opportunities.
The dividend share has already guided that the final FY20 dividend will be an increase on FY19’s final dividend.
It’s steadily making new investments to diversify the portfolio further. New investments include agriculture, retirement living and regional data centres.
Dividend share 3: WAM Leaders Ltd (ASX: WLE)
WAM Leaders is another LIC. This one is managed by the high-performing team at Wilson Asset Management (WAM). It looks to make good returns from the larger businesses on the ASX.
The dividend share has grown its dividend each year since FY17. It currently has an annualised grossed-up dividend yield of 8.7%.
Since inception in May 2016, its investment performance (before fees, expenses and taxes) has outperformed the S&P/ASX 200 Accumulation Index by 3.8% per annum. Over the past year its gross portfolio performance has been 11.4% better than the benchmark. I think that’s an impressive performance from the dividend share.
Some of its top 20 holdings are similar to the ASX 20. But some holdings at the end of May 2020 were different, like Downer EDI Limited (ASX: DOW), Fortescue Metals Group Limited (ASX: FMG), OZ Minerals Limited (ASX: OZL), QBE Insurance Group Ltd (ASX: QBE), Ramsay Health Care Limited (ASX: RHC) and Santos Ltd (ASX: STO).
As a bonus, WAM Leaders is trading at a 7% discount to the 31 May 2020 net tangible assets (NTA).
Each of these dividend shares would be really good options to boost your income. Naos clearly has the biggest dividend yield, but that doesn’t leave much room for share price growth over time. Soul Patts is my preferred choice because of its low operational costs and ultra-long-term record of dividends and reliability.
5 stocks under $5
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.